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Foolish Money Lab: Dodging Disaster

Welcome to the Foolish Money Lab, where a Fool dons her jester hat and puts common personal finance advice to the test. This month, she tries to protect her financial life from drowning, burning, or just plain disappearing in the event of a disaster.

The theory
Good financial planners not only allocate every dollar with care, but also hedge against life's many risks. Insurance takes care of this job by protecting you against financial calamity. Yet when it comes time to make a claim, property and casualty insurers like Allstate (NYSE: ALL  ) , Travelers (NYSE: TRV  ) , and Safeco (NYSE: SAF  ) all need documentation to avoid processing delays.

So having insurance isn't enough. You also need to protect important documents from disaster and be able to evacuate with them in a hurry. That means taking the time before disaster strikes to compile important papers, account information, and any other financial details you might need in an emergency, then finding someplace really safe to keep them.

The experience
I had started this project several years ago but abandoned it when something more pressing (probably a "Sopranos" marathon) got my attention. Getting restarted proved a little more complicated than I expected. Disaster preparation has become as much a philosophical exercise as a logistical one. Since the Sept. 11 terrorist attacks and Hurricane Katrina, new schools of thought have arisen about the best way to protect your financial life.

The old-fashioned approach involves keeping irreplaceable papers and valuables in a safe-deposit box and compiling copies, along with other important information, at home in a way that they can be grabbed on the way out the door in the case of an emergency.

Newer variations ponder the terrible reality that disasters don't just hit individuals -- they often take down entire communities. To prepare for that eventuality, some experts suggest you select a safe-deposit box far from your home. Others suggest you make copies of your entire financial life and send that information to a close friend or relative who lives as far from you as possible.

If you don't want to put all this sensitive data into someone else's hands, you can put it online. In the simplest system, email your important information to yourself. An online storage service or a flash drive can back up scanned copies of your important documents or your entire hard drive, including irreplaceable digital photos.

After weighing the possible disaster scenarios, I settled on a mostly old-fashioned approach, with some selected electronic backups. That's because every disaster I've ever experienced has involved a prolonged power outage. Having all my documents and contact information on a flash drive, with no working computer, a dead cell phone, and a drained Palm Pilot, seemed more risky than relying on admittedly fragile paper. So, I started compiling some files.

The results
Do a quick Internet search, and you'll find many lists of the important financial information you should keep. It pays to consult a few. No single list covers everything, although you can get a great start at the Red Cross and the FDIC.

A few uncommon tips I ran across: Include a current picture of each member of your household. Make extra photocopies of original documents (like birth certificates and Social Security cards), so you're never forced to hand over an original in an emergency. Store a book of checks with your emergency records in case you can't get access to cash through your ATM or you need to mail payments.

Even for a reasonably organized person, this project will take a while. It's tedious. It's boring. It's morbid. It's very easy to get distracted by Sopranos marathons. I stalled, procrastinated, and dithered. I chewed on it a little bit at time. Finally, I made myself finish it off in order to write this article.

My advice
That brings me to my first recommendation. Set a deadline. Make it the beginning of tornado season, hurricane season, avalanche season, locust-and-plague season, or your ex-boyfriend's mother's dog's birthday. It doesn't matter -- just pick a date. Create a reward system if you're tempted to blow past the deadline.

The time it took to finish this project ultimately made me realize its importance. There's no way I would have been able to get my hands on all that information, along with checkbooks and ATM cards, in the event of an evacuation. I'd never have the presence of mind to remember half the stuff, never mind have the time to find it.

Think about the disasters most likely to hit your area, along with the perils your home might face. Decide whether you want to take an old-fashioned or new-fangled approach (or both, if you want to really cover your bases), and get started. Even a few documents and a little cash will serve you better than nothing at all.

My disaster preparedness kit now lacks only one thing: a home inventory. (That's a little foreshadowing for next month.)

For more ideas for protecting yourself from calamities large and small, see:


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